Published June 9th, 2015
C.H. Robinson (CHRW) is one of the largest 3rd party logistics providers in the world. The company was founded in 1905 and has grown to reach a market cap of over $9 billion. The image below from the company’s most recent investor presentation shows the global office and employee count of C.H. Robinson
C.H. Robinson is a member of the Dividend Achievers Index. The company has paid increasing dividends each year since 1997. The Dividend Achievers Index is comprised of businesses with 10 or more consecutive years of dividend payments. You can see the current list of all 238 members of the Dividend Achievers Index here.
This article will look at C.H. Robinson’s current events, competitive advantage, and future growth prospects. The company will be examined using The 8 Rules of Dividend Investing. The 8 Rules of Dividend Investing take a systematic approach to building a high quality dividend growth portfolio.
C.H. Robinson operates in two broad segments; transportation and sourcing. The transportation segment generated 94% of revenue for C.H. Robinson in the company’s most recent quarter. The sourcing segment generated just 6% of revenue in the same quarter. Transportation is the company’s primary business.
The transportation segment is further divided into 7 divisions. Each division is shown below along with the percentage of total revenue generated for C.H. Robinson in the company’s most recent quarter.
- Truckload: 57% of total revenue
- LTL: 10% of total revenue
- Intermodal: 2% of total revenue
- Ocean: 10% of total revenue
- Air: 4% of total revenue
- Customs: 2% of total revenue
- Other logistic services: 4% of total revenue
The truckload division is by far the company’s largest, responsible for 57% of total revenue. The LTL (less-than-truckload) division is closely related to the truckload division. Together, these 2 divisions account for about two-thirds of C.H. Robinson’s business. At its core, C.H. Robinson is a third-party trucking business that has expanded into air, freight, intermodal, and customs services to better serve its customers.
C.H. Robinson has the largest contracted pool of motor capacity in North America. The company’s competitive advantage comes from its large network of motor carriers. C.H. Robinson’s business is built around working with a large number of small carriers rather than being held captive by a smaller number of large carriers. In 2014, 84% of truckload shipments were done with small carrier companies that have fewer than 100 trucks.
Working with a large network of smaller carriers allows C.H. Robinson to benefit from competition within the carrier market. The company uses its extensive network of carriers to reduce prices for its customers and provide better service options.
Growth Prospects & Total Returns
C.H. Robinson has compounded earnings-per-share at 11.3% a year over the last decade. The company is targeting earnings-per-share growth of 7% to 12% a year over the next several years.
C.H Robinson has several growth drivers. The company has opportunities to cross-sell its services to its large customer base. Currently, the company’s top customers use an average of 3 of the company’s services. C.H. Robinson can grow organically through providing more logistics services for its current customer base.
Despite C.H. Robinson’s large size in the third party logistics industry, the company controls just 2.2% of the North American truckload industry and 2.3% of the North American LTL industry. C.H. Robinson has a long growth runway ahead of it.
C.H. Robinson is realizing success in Europe. The company is the largest third party logistics transportation provider in Europe. C.H. Robinson is not new to Europe. The company entered the European market in 1993, giving it 22 years of experience in the market. Management expects Europe to be C.H. Robinson’s fastest growing market going forward. The company is expecting 15%+ growth in Europe going forward.
Shareholders of C.H. Robinson can expect returns of 9.4% to 14.4% a year going forward. Returns will come from earnings-per-share growth (7% to 12%) and dividends (2.4%). C.H. Robinson is targeting a 40% to 50% payout ratio. The company is also committed to returning 90% of cash flows to shareholders through dividends and share repurchases. At current prices, this comes to a shareholder yield of around 4.5%.
C.H. Robinson posted excellent results in its most recent quarter. The company saw earnings-per-share climb 15.9% versus the same quarter a year ago. Revenue grew 14.8%. The LTL segment showed the most rapid growth, growing 42% versus the same quarter a year ago.
The LTL segment grew 8 percentage points organically. The remaining 34 percentage points of growth came from the acquisition of Freightquote.com. C.H. Robinson acquired Freightquote.com for $365 million in cash. The company paid an EBITDA multiple of 10.7 for Freightquote.com. The acquisition of Freightquote.com will likely continue to be accretive for C.H. Robinson as the company benefits from Freightquote.com’s popularity with e-commerce customers. The acquisition also further ads to C.H. Robinson’s network of truckload and LTL carriers.
Excellent first quarter results point to a strong 2015 for C.H. Robinson. The company will likely exceed or come in at the top end of its long-term growth expectations in fiscal 2015.
C.H. Robinson managed to grow earnings-per-share each year through the Great Recession of 2007 to 2009. Third party logistics companies tend to do well during recessions as unused goods must be transported and stored. The company’s recession resistance should appeal to risk averse investors. C.H. Robinson’s earnings-per-share each year through the Great Recession are shown below to show the company’s performance during that difficult time.
- 2007 Earnings-per-share of $1.86
- 2008 Earnings-per-share of $2.08
- 2009 Earnings-per-share of $2.13
- 2010 Earnings-per-share of $2.33
The S&P 500 is currently trading for a price-to-earnings ratio of 20.3. Over the long-run, the S&P 500 has produced total returns of around 9% a year. C.H. Robinson is expected to produce total returns of 9.4% to 14.4% a year over the next decade.
One would expect the company to trade at a higher price-to-earnings multiple to account for its expected-market-beating returns. C.H. Robinson is currently trading for a price-to-earnings ratio of 20.1, despite having better expected returns than the S&P 500.
C.H. Robinson has paid increasing dividends each year since going public. The company is still experiencing solid growth. At current prices, C.H. Robinson appears slightly undervalued relative to the overall market.
The 8 Rules of Dividend Investing
The sections below will compare C.H. Robinson to other businesses with a long history of dividend increases using the 5 Buy Rules from The 8 Rules of Dividend Investing. Each rule has a short ‘why it matters’ section, explaining why the rule is relevant.
Rule 1: 25+ Years of Dividends Without A Reduction
C.H. Robinson has paid increasing dividend each year since 1997, which is the year the company went public. C.H. Robinson has only had one year since 1999 when earnings-per-share fell (2013 was the year). The company has a strong competitive advantage. Unfortunately, C.H. Robinson does not pass the first rule of dividend investing, which is to have 25+ years of consecutive dividend payments without a reduction. Nevertheless, the company will be compared to other businesses with long dividend histories in this article to show where C.H. Robinson would rank if it did pass the first rule of dividend investing.
Why it matters: The Dividend Aristocrats (stocks with 25+ years of rising dividends) have outperformed the S&P 500 over the last 10 years by 2.88 percentage points per year.
Source: S&P 500 Dividend Aristocrats Factsheet
Rule 2: Dividend Yield
C.H. Robinson currently has a dividend yield of 2.4%. The company has the 93rd highest dividend yield out of 167 businesses with 25+ years of dividend payments without a reduction. C.H. Robinson’s dividend yield is above the S&P 500’s, but slightly below average for businesses with long dividend histories.
Why it Matters: Stocks with higher dividend yields have historically outperformed stocks with lower dividend yields. The highest-yielding quintile of stocks outperformed the lowest-yielding quintile by 1.76 percentage points per year from 1928 to 2013.
Source: Dividends: A Review of Historical Returns
Rule 3: Payout Ratio
C.H. Robinson currently has a payout ratio of 46.3%. The company’s management is targeting a payout ratio of between 40% and 50%. C.H. Robinson has the 77th lowest payout ratio out of 167 businesses with 25+ years of dividend payments without a reduction. The company’s payout ratio is fairly conservative but still gives shareholders a sizeable portion of earnings.
Why it Matters: High-yield, low-payout ratio stocks outperformed high-yield, high-payout ratio stocks by 8.2 percentage points per year from 1990 to 2006.
Source: High Yield, Low Payout by Barefoot, Patel, & Yao, page 3
Rule 4: Long-Term Growth Rate
C.H. Robinson has grown revenues-per-share at 11.6% a year over the last decade. The company has the 7th fastest growth rate out of 167 businesses with long dividend histories. C.H. Robinson’s rapid growth should appeal to dividend growth investors looking for rising future income.
Why it Matters: Growing dividend stocks have outperformed stocks with unchanging dividends by 2.4 percentage points per year from 1972 to 2013.
Source: Rising Dividends Fund, Oppenheimer, page 4
Rule 5: Long-Term Volatility
C.H. Robinson has a stock price standard deviation of 31.6% the company’s stock price standard deviation is higher than average. C.H. Robinson has the 109th lowest stock price standard deviation out of 167 businesses with 25+ years of dividend payments without a reduction.
Why it Matters: The S&P Low Volatility index outperformed the S&P 500 by 2 percentage points per year for the 20-year period ending September 30th, 2011.
Source: Low & Slow Could Win the Race
C.H. Robinson would ranks in the Top 30% using The 8 Rules of Dividend Investing if it passed the first rule of dividend investing. The company should appeal to dividend growth investors looking for future growth with decent current income. C.H. Robinson has a long growth runway ahead and will very likely reward shareholders with rising dividends for many years in the future.